everywhere in America the relations between the railroads and the
state have become much closer within the last few years. Canada
a few years ago consolidated its railroad laws and established a
Railway Commission, to which was given very wide powers of control
both over railroad construction and operation and over rates and
fares for goods and passengers. Argentina has also moved in the
same direction. In the United States, not only has there been the
passage by the Federal Congress at Washington of the law amending the
original Act to Regulate Commerce and giving much increased powers
to the Interstate Commerce Commission, besides various other Acts
dealing with subsidiary points, such as hours of railroad employes,
but scores, if not hundreds, of Acts have been passed by the various
state legislatures. With these it is quite impossible to deal in
detail; many of them impose new pecuniary burdens upon the railroad
companies, as, for instance, the obligation to carry passengers at
the maximum rate of a penny per mile. All of them, speaking broadly,
impose new obligations and new restrictions upon the railroad
companies. Not a few have already been declared unconstitutional, and
therefore invalid, by the law courts. And when the mills of American
legal procedure shall at length have finished their exceedingly
slow grinding, it is safe to prophesy that a good many more will
have ceased to operate. But for all that, the net result of state
and Federal legislation in the sessions of 1906 and 1907 will
unquestionably be that even after the reaction and repeal, which,
thanks to the Wall street panic of last year, is now in progress,
the railroads of the United States will in the future be subject to
much more rigid and detailed control by public authority than there
has been in the past. The reign of railroad despotism, more or less
benevolent, is definitely at an end; the reign of law has begun. It
is only to be regretted that the quantity of the law errs as much on
the side of excess as its quality on the side of deficiency.
THE MEXICAN SITUATION.
Apart from its interest as a quite startling example of how not
to do it, the recent railroad legislation of the United States is
only valuable as an indication of the tendency, universal in all
countries, however governed, for the state to take a closer control
over its railroads. Much more interesting as containing a definite
political ideal, worked out in detail in a statesmanlike manner, is
the recent railroad legislation of Mexico. One may be thought to be
verging on paradox in suggesting that England, with seven centuries
of parliamentary history, can learn something from the Republic of
Mexico. But for all that I would say, with all seriousness, that I
believe the relation between the state and the national railroads is
one of the most difficult and important questions of modern politics,
and that the one valuable and original contribution to the solution
of that question which has been made in the present generation is due
to the President of the Mexican Republic and his Finance Minister,
Señor Limantour.
Broadly, the Mexican situation is this: The Mexican railroads were in
the hands of foreign capitalists, English mainly so far as the older
lines were concerned, American in respect to the newer railroads,
more especially those which constituted continuations southwards
of the great American railroad systems. The foreign companies,
whether English or American, naturally regarded Mexico as a field
for earning dividends for their shareholders. The American companies
further, equally naturally, tended to regard Mexico as an annexe and
_dépendance_ of the United States. If they thought at all of the
interest of Mexico in developing as an independent self-contained
state, they were bound to regard it with hostility rather than with
favor, and such a point of view could hardly commend itself to the
statesmen at the head of the Mexican government. Yet Mexico is a
poor and undeveloped country, quite unable to dispense with foreign
capital; and, further, it was at least questionable whether Mexican
political virtue was sufficiently firm-rooted to withstand the
manifold temptations inherent in the direct management of railroads
under a parliamentary _régime_. Under these circumstances the
Mexicans have adopted the following scheme: For a comparatively
small expenditure in actual cash, coupled with a not very serious
obligation to guarantee the interest on necessary bond issues,
the Mexican government have acquired such a holding of deferred
ordinary stock in the National Railroad Company of Mexico as gives
them, not, indeed, any immediate dividend on their investment, but
a present control in all essentials of the policy of the company,
and also prospects of considerable profit when the country shall
have further developed. The organization of the company as a private
commercial undertaking subsists as before. A board of directors,
elected in the ordinary manner by the votes of shareholders, remains
as a barrier against political or local pressure in the direction
of uncommercial concessions, whether of new lines or of extended
facilities or reduced rates on the old lines; but--and here is the
fundamental difference between the new system and the old--whereas
under the old system the final appeal was to a body of shareholders
with no interest beyond their own dividend, the majority shareholder
is now the Government of Mexico, with every inducement to regard the
interests, both present and prospective, of the country as a whole.
IRREFRAGABLE THEORY OF PUBLIC OWNERSHIP.
Public ownership of railroads is in theory irrefragable. Railroads
are a public service; it is right that they should be operated by
public servants in the public interest. Unfortunately, especially in
democratically organized communities, the facts have not infrequently
refused to fit the theories, and the public servants have allowed,
or been constrained to allow, the railroads to be run, not in the
permanent interest of the community as a whole, but in the temporary
interest of that portion of the community which at the moment could
exert the most strenuous pressure. The Mexican system, if it succeeds
in establishing itself permanently--for as yet it is only on its
trial--may perhaps have avoided both Scylla and Charybdis. Faced with
a powerful but local and temporary demand, the government may be able
to reply that this is a matter to be dealt with on commercial lines
by the board of directors. If, on the other hand, permanent national
interests are involved, the government can exercise its reserve
power as a shareholder, can vote the directors out of office, and
so prevent the continuance of a policy which would in its judgment
be prejudicial to those interests, however much it might be to the
advantage of the railroad as a mere commercial concern.
STATE CONTROL OR OWNERSHIP.
The history whose outline I have now very briefly sketched shows, I
think, that whereas there is everywhere a tendency towards further
state control, the tendency towards absolute state-ownership and
state-operation is far from being equally universal. I shall have
a word to say presently as to the reasons why America shows no
signs of intention to follow the example of continental Europe.
Meanwhile it is well to notice that American experience proves also
the extreme difficulty of finding satisfactory methods of control.
Sir Henry Tyler said some five-and-thirty years ago in England, in
words that have often been quoted since, "If the state can't control
the railroads, the railroads will control the state"; and President
Roosevelt has again and again in the last few years insisted on the
same point. "The American people," he said in effect, "must work
out a satisfactory method of controlling these great organizations.
If left uncontrolled, there will be such abuses and such consequent
popular indignation that state-ownership will become inevitable, and
state-ownership is alien to American ideas, and might cause very
serious political dangers."
Perhaps some of my hearers may remember Macaulay's graphic
description of the passion that was aroused by Charles James
Fox's proposed India Bill; it was described as a Bill for giving
in perpetuity to the Whigs, whether in or out of office, the
whole patronage of the Indian government. The objection felt by
American statesmen to handing over their railroads to the National
government--for I think it may be taken for granted that if they were
nationalized it would have to be wholly under Federal management,
and that the separate states could take no part in the matter--is in
principle the same. There are something like a million and a half
men employed on the railroads of the United States, say roughly 7
or 8 per cent. of the voters. Americans feel that rival political
parties might bid against each other for the support of so vast and
homogeneous a body of voters; that the amount of patronage placed at
the disposal of the executive government for the time being would
be enormous; and that the general interests of the nation might
be sacrificed by politicians anxious to placate--to use their own
term--particular local and sectional interests. How far this fear,
which is undoubtedly very prevalent in the states, is justified
by the history of state railroads in other countries is a question
exceedingly difficult to answer. Dealing with state railroads in the
lump, it is easy to point to some against which the charge would
be conspicuously untrue. To take the most important state railroad
organization in the world, the Prussian system, no one, I think, can
fairly deny that it has been operated--in intention at least, if not
always in result--for the greatest good of the greatest number. But
then Prussia is Prussia, with a government in effect autocratic, with
a civil service with strong _esprit de corps_ and permeated with old
traditions, leading them to regard themselves as the servants of
the king rather than as candidates for popular favor. An American
statesman, Charles Francis Adams, wrote as follows more than 30 years
ago: "In applying results drawn from the experience of one country
to problems which present themselves in another, the difference of
social and political habit and education should ever be borne in
mind. Because in the countries of continental Europe the state can
and does hold close relations, amounting even to ownership, with
the railroads, it does not follow that the same course could be
successfully pursued in England or in America. The former nations are
by political habit administrative, the latter are parliamentary. In
other words, France and Germany are essentially executive in their
governmental systems, while England and America are legislative.
Now the executive may design, construct or operate a railroad; the
legislative never can. A country therefore with a weak or unstable
executive, or a crude and imperfect civil service, should accept with
caution results achieved under a government of bureaus. Nevertheless,
though conclusions cannot be adopted in the gross, there may be in
them much good food for reflection."
CONTROL BY DEMOCRACY, OR OWNERSHIP BY AUTOCRACY.
I am inclined to think that the effect of the evidence is that the
further a government departs from autocracy and develops in the
direction of democracy, the less successful it is likely to be in
the direct management of railroads. Belgium is far from being a pure
democracy; but compared with Prussia it is democratic, and compared
with Prussia its railroad management is certainly inferior. Popular
opinion in Belgium seems at present to be exceedingly hostile to the
railroad administration; official documents assert that, while the
service to the public is bad, the staff are scandalously underpaid,
and yet that the railroads are actually not paying their way. There
was, it is true, till recently an accumulated surplus of profits
carried in the railroad accounts, but the official figures have been
recently revised, and the surplus is shown to be non-existent.
The Swiss experiment is too new to justify any very positive
conclusions being drawn from it; but this much is clear: the state
has had to pay for the acquisition of the private lines sums very
much larger than were put forward in the original estimate; the
surplus profits that were counted on have not been obtained in
practice; the economies that were expected to result from unification
have not been realized; the expenditure for salaries and wages
has increased very largely; and so far from there being a profit
to the Federal government, the official statement of the railroad
administration is that, unless the utmost care is exercised in the
future, the railroad receipts will not cover the railroad expenditure.
The Italian experiment is still newer. It would not be fair to say
that it proves anything against state management; but I do not think
that the most fervid _Etatist_ would claim that, either on the ground
of efficiency or on the ground of economy, it has so far furnished
any argument in favor of that policy.
If we wish to study the state management of railroads by pure
democracies of Anglo-Saxon type, we must go to our own Colonies.
My own impressions, formed after considerable study of the subject
and having had the advantage of talking with not a few of the men
who have made the history, I hesitate to give. It is easy to find
partisan statements on both sides; for example, in a recent article
in the _Nineteenth Century_, entitled "The Pure Politics Campaign
in Canada," I find the following quotation from the _Montreal
Gazette_--a paper of high standing--dated May 27, 1907: "Every job
alleged against the Russian autocracy has been paralleled in kind
in Canada. First, there is the awful example of the Intercolonial
Railway, probably as to construction the most costly single-track
system in North America, serving a good traffic-bearing country, with
little or no competition during much of the year, and in connection
with much of its length no competition at all, but so mishandled that
one of its managers, giving up his job in disgust, said it was run
like a comic opera. Some years it does not earn enough to pay the
cost of operation and maintenance (I may interpolate that its gross
earnings per mile are equal to those of an average United States
railroad), and every year it needs a grant of one, two, three or four
million dollars out of the Treasury to keep it in condition to do at
a loss the business that comes to it. When land is to be bought for
the road, somebody who knows what is intended obtains possession of
it, and turns it over to the government at 40, 50 and 100 per cent
advance. This is established by the records of Parliament and of the
courts of the land."
AFRICAN CAPE GOVERNMENT RAILROADS.
Probably no one outside the somewhat heated air of Canadian politics
is likely to believe this damning accusation quite implicitly; but
even if there were not a word of truth in it--and that the management
of the Intercolonial Railway is, for whatever cause, bad, appears, I
think, clearly from the public figures--it is bad enough that such
charges should be publicly made and apparently believed. Let me quote
now from a document of a very different type referring to a colony
very far distant from Canada: "A memorandum relative to Railroad
Organization, prepared at the request of the Railroad Commissioners
of the Cape Government Railways, by Sir Thomas R. Price, formerly
general manager of those railroads, and now general manager of the
Central South Africa (_i. e._, Transvaal and Orange River) Railways,
dated Johannesburg, February 22, 1907."
"The drawbacks in the management of the railroads in the Cape
that call for removal arise from the extent to which, and the
manner in which, the authority of Parliament is exercised. They
are twofold in their character, viz.:
"(1) The practice of public authorities, influential
persons, and others bent on securing concessions or other
advantages which the general manager has either refused in
the conscientious exercise of his functions, or is not likely
to grant, making representation to the Commissioner (as the
ministerial head of the Government), supplemented by such
pressure, political influence, or other means as are considered
perfectly legitimate in their way, and are best calculated to
attain the end applicants have in view.
"(Many members of Parliament act similarly in the interests
of the districts, constituents, or railroad employes in whom
they happen to be interested. It is by no means unknown for the
requests in both classes of cases to coincide somewhat with a
critical division in Parliament--present or in prospect--or
otherwise something has occurred which is regarded as
irritating to the public or embarrassing to the Government, and
the desire to minimize the effect by some conciliatory act is
not unnatural.)
"(2) The extent to which the fictitious, and often transitory,
importance which a community or district manages to acquire
obscures (under the guise of the Colony's welfare) the
consideration of the railroad and general interest in the
Colony as a whole."
(During the earlier period of my railroad service in the Cape
Colony few things impressed me more, coming as I had from a
railroad conducted on strictly business lines, than the extent
to which the conduct of railroad affairs was influenced by
certain conditions. Nor was this impression lessened afterwards
when, in the course of a conversation on the matter, Sir
Charles Elliott mentioned to me that he had more than once told
a late railway commissioner, "The Government is powerful, but
[mentioning the town and authority] is more powerful still.")
"I do not regard it as open to doubt that the Colony as a whole
has suffered severely in consequence, the inland portions of
the Colony particularly so; and that the need for a remedy is
pressing if the railroads are to be conducted as a business
concern for the benefit of the Colony.
"The necessity for the railroads and their administration being
removed from such an atmosphere, and treated as a most valuable
means of benefiting the Colony as a whole, while not neglecting
the interests of a district (but not subordinating the welfare
of the whole Colony thereto), is pressing. That there should be
an authority to refer to in case of real necessity, where the
decision or action of the general manager is not regarded as
being in the public interests, is also clear. But it is equally
manifest that the Commissioner or the Government of the day,
with political or party consideration always in view, is not
the proper court of reference.
"There can be little doubt that in the Cape Colony political
considerations have influenced the adoption of new lines
and their construction--many, if not most of them of an
unprofitable character--without sufficient inquiry or
information, often with scanty particulars, and possibly
contrary to the advice of the officer afterwards entrusted with
the construction and working of the line.
"A material change is imperatively necessary in this respect,
if only to insure the solvency of the Colony."
VICTORIAN (AUSTRALIA) RAILROADS.
It is sometimes conceded that improper exercise of political
influence may be a real danger where railroads are managed under
a parliamentary _régime_ by a Minister directly responsible to
Parliament; but that difficulty, it is said, can be got over by
the appointment of an independent Commission entirely outside the
political arena. History does not altogether justify the contention.
The last report of the Victorian State Railways gives a list of seven
branches, with an aggregate length of 46 miles, constructed under the
Commissioner _régime_ at a cost of £387,000, which are now closed
for traffic and abandoned because the gross receipts failed even to
cover the out-of-pocket working expenses. It is not alleged, nor is
it a fact, that those lines were constructed in consequence of any
error of judgment on the part of the Commissioners. But in truth it
is inherently impossible to use a Commission to protect a community
against itself. In theory a Commission might be a despot perfectly
benevolent and perfectly intelligent; in that case, however, it
can hardly be said that the nation manages its own railroads. But
of course any such idea is practically impossible, because despots,
however benevolent and intelligent, cannot be made to fit into the
framework of an Anglo-Saxon constitution. In practical life the
Railway Commission must be responsible to someone, and that someone
can only be a member of the political government of the day.
COMPETITION HAS CEASED TO REGULATE.
I have indicated what in America, where the subject is much more
carefully considered than here, is regarded as a great obstacle to a
state-railroad system; but I have pointed out also that it is quite
possible that statesmen fully alive to the dangers may yet find
themselves constrained to risk them unless some satisfactory method
of controlling private railroad enterprise can be found. I do not
think it can be considered that this has been done in England at the
present time. In the main we have relied on the force of competition
to secure for us reasonable service at not unreasonable rates; and
as I still cherish a long-formed belief that English railroads are
on the whole among the best, if not actually the best, in the world,
I am far from saying that competition has not done its work well.
But competition is an instrument that is at this moment breaking in
our hands. Within quite a few years the South Eastern Railway was
united with the Chatham; the Great Southern has obtained a monopoly
over a large part of Ireland; in Scotland the Caledonian and the
North British, the Highland and the Great North have in very great
measure ceased to compete. If the present proposals for the working
union of the Great Eastern, the Great Northern and the Great Central
go through, competition in the East of England will be absolutely
non-existent from the Channel to the Tweed. And one can hardly
suppose that matters will stop there. In fact, since this address
was in type a comprehensive scheme of arrangement for a long term of
years between the London & North Western and the Midland has been
announced. We must, I think, assume that competition, which has done
good work for the public in its day, is practically ceasing to have
any real operation in regulating English railroads.
HOW SHALL GOVERNMENT REGULATE?
For regulation, therefore, we must fall back on government; but
how shall a government exercise its functions? Regulation may be
legislative, judicial, executive, or, as usually happens in practice,
a combination of all three. But we may notice that, as Mr. Adams
points out, in Anglo-Saxon countries it is the Legislature and the
Judicature that are predominant; whereas in a country like France,
which though a democracy is bureaucratically organized, it is
executive regulation that is most important. Now, the capacity of the
Legislature to regulate is strictly limited; it can lay down general
rules; it can, so to speak, provide a framework, but it cannot decide
_ad hoc_ how to fit into that framework the innumerable questions
that come up for practical decision day by day.
The capacity of the law courts to regulate is even more strictly
limited. For not only is it confined within the precise limits of
the jurisdiction expressly conferred upon it by the Legislature, but
further, by the necessity of the case, a court of law can only decide
the particular case brought before it; a hundred other cases, equally
important in principle, and perhaps more important in practice, may
never be brought before it at all. Even if the court had decided
all the principles, it has no machinery to secure their application
to any other case than the one particular case on which judgment
was given. There was a case decided 30 years ago by our Railroad
Commission, the principle of which, had it been generally applied
throughout the country, would have revolutionized the whole carrying
business of Great Britain. It has not been so applied, to the great
advantage, in my judgment, of English trade. Further, the great bulk
of the cases which make up the practical work of a railroad: "What is
a reasonable rate, having regard to all the circumstances, present
and prospective, of the case? Would it be reasonable to run a new
train or to take off an old one? Would it be reasonable to open a
new station, to extend the area of free cartage, and the like?"--all
these are questions of discretion, of commercial instinct. They
can only be answered with a "Probably on the whole," not with a
categorical "Yes" or "No," and they are absolutely unsuitable for
determination by the positive methods of the law court with its
precisely defined issues, its sworn evidence, and its rigorous
exclusion of what, while the lawyer describes it as irrelevant, is
often precisely the class of consideration which would determine one
way or other the decision of the practical man of business.
It seems to me, therefore, that both in England and in America we
must expect to see in the near future a considerable development of
executive government control over railroads.